Stock option ambit widened
FIIs book profit, sensex sheds 109
Pension scheme for RBI staff
Indian Rayon to float insurance venture
Taj may tap US markets to fund expansion drive
Largesse for laggard states
Foreign Exchange, Bullion, Stock Indices

New Delhi, Sept 15: 
The government today allowed knowledge-based firms in the pharmaceutical and biotech sectors to issue ADR/GDR-linked employee stock options (Esops). So far, only infotech software and service companies could do so.

Under the revised guidelines, which come into force with immediate effect, companies in the entertainment software sector, pharmaceuticals and biotechnology sectors can offer ADR/GDR-linked options. Even diversified firms which have knowledge-based products in their portfolio have been included.

These multi-product companies will not have to comply with the norm that knowledge-based businesses contribute 80 per cent to their turnover. However, they must have had annual average export earnings of at least Rs 100 crore from knowledge-based products in the preceding three years.

Analysts say the move will help attract and retain skilled employees, besides garnering dollars for the country. �Because of the unique clause, the benefits of offering Esops will cuts across industries, instead of being confined to know-how and technology firms. The amount which can flow in could be increased significantly. It should shore up our kitty,� K. K. Sengupta, a top merchant banker, said.

Finance ministry officials said, apart from helping corporates keep and lure skilled professionals, will also go a long way to bolster the country�s foreign exchange reserves.

�With mounting worries over the falling rupee value, the decision will be seen in the financial community as evidence of our commitment to stabilise the beleaguered currency. These confidence building measures are very important,� officials of the department of economic affairs, dealing in foreign exchange reserve issues, said. These remarks came on a day when the rupee plumbed 45.75 to a dollar in an 8-paise decline over Thursday�s close of 45.67.

Esops linked to ADR/GDRs were allowed for the first time in June 1998, but the scheme was restricted to software companies. It was later extended to include infotech services companies.

The latest round of extensions bring the entire array of knowledge-based firms under the ambit.

In June this year, it expanded the list of employees who would be entitled to stock options, and bringing it in line with the Sebi norms. The government also decided to allow IT software and services companies to issue ADR/GDR-linked stock options to employees of its subsidiaries incorporated overseas.    

Mumbai, Sept 15: 
Bears went on the rampage on the bourses today, taking the sheen off major pivotals, as profit booking by foreign institutional investors (FIIs) and operators pushed the sensex to close 109.54 points lower on the Bombay Stock Exchange.

The market today lived up to its reputation of buying on the basis of rumours and selling on news, which proved to be the undoing of software warhorse Infosys. The scrip fell sharply despite the news of its strategic global alliance with Microsoft Corp.

However, profit booking was predicted by several technical analysts, in view of the rapid run-up in stock prices over the last couple of weeks. Dealers feel a further correction cannot be ruled out.

While the new economy favourites of infotech, media and pharma shares kept a low profile, fears of a petroleum price hike was responsible for widespread selling in old economy stocks.

Operators, scared of keeping open long positions in most of the frontline counters, preferred to wind up their positions on the last day of the current settlement in the light of the impending petro price hike which might follow on the Prime Minister�s return from the US next week.

Reflecting the onslaught on the index-based scrips with 27 showing sharp to moderate falls, the BSE sensitive index opened at 4666.47 and gradually moved south to the day�s low of 4539.35, before closing at 4562.38 as against yesterday�s close of 4671.92, showing a net loss of 109.54 points or 2.34 per cent.

FIIs were net sellers during the day, with net sales to the tune of Rs 215.7 crore.

Broking circles aver that the markets crashed towards the end of the day due to selling by operators on the last day of the settlement on the BSE.    

Calcutta, Sept 15: 
The Reserve Bank of India has asked its 25,000 employees to exercise their option by November 15 on a pension scheme which is being extended as a third retirement benefit. The employees will now have to choose between the pension scheme and the contributory provident fund � which is the bank�s contribution to the employees PF account. The move has raised hopes within the industry that a similar scheme will be extended to the 3 lakh employees of commercial banks.

In a circular issued on September 14, the apex bank said: �It has been decided to allow all existing employees (contributory provident fund optees) and also those ex-employees who were in the bank service on or after 1st November 1997 but retired thereafter with CPF benefits to exercise a fresh option to be governed by RBI pension regulation 1990. The option for pension in the prescribed format will have to be exercised on or before November 15, 2000.�

The RBI employees will be entitled to pension amounting to half of the last drawn basic pay and other pay components including special allowance. Besides this, the employee will be entitled to dearness relief linked to the consumer price index (CPI). The minimum pension that a class III employee of RBI gets is Rs 6,500 a month.

A pension option scheme was offered to RBI employees back in 1995. The RBI had first introduced a pension scheme in 1990. There was poor response to both schemes as the employees had not been sufficiently briefed about the advantages of the scheme.

This time round the response is likely to be overwhelming largely because there is a growing feeling of insecurity within the industry which is grappling with sensitive issues like downsizing and retrenchment. Most employees have been eagerly awaiting the announcement of the pension plan which has now become lucrative as their basic pay has gone up substantially under the new wage settlement.

The announcement has sparked mixed reactions among the employees of commercial banks. While a section of the employees are upset over the development, others are happy that it will strengthen their case for a demand pension scheme.

It may be mentioned that the government is unwilling to extend the option for a pension scheme to the commercial banks despite persistent demand from the bank employees.

Senior officials in the banking industry said, �This may be a precursor to the extension of the option for a pension scheme to the banking industry as a whole. This is a welcome signal.�

�This will enable us to intensify our stir for a pension,� said representatives of the Bank Employees Federation of India.

Samir Ghosh, general secretary of All India Reserve Bank of Employees Association said, �It is in the fitness of things that employees will be given one more option for pension after the current wage settlement. This was done earlier too. But the situation was complicated by Indian Banks Association�s and the government�s intransigence on the issue of extending the option to commercial banks despite the demand from the apex unions of employees and officers in the banking sector. In this context, the development in RBI is remarkable.�

The RBI was supposed to declare the pension scheme after the wage settlement on August 18.

Ghosh said the pension scheme for central government employees has improved meanwhile, particularly in respect of the commutation benefit (40 per cent of the basic pension instead of 33 per cent earlier), which is yet to be implemented by RBI.    

Mumbai, Sept 15: 
Indian Rayon and Industries, part of the A V Birla conglomerate, will lead the group�s life insurance foray.

The company told stock exchanges today that it will promote an insurance joint venture with Sun Life Financial of Canada (Sun Life) and Birla Global Finance (BGFL), the group�s non-banking finance (NBFC) arm. Sun Life may pick up to 26 per cent in the joint venture while BGFL may be given shares equivalent to 10 per cent of its net worth; the remaining equity will be subscribed by Indian Rayon.

The decision to put Indian Rayon at the vanguard of the insurance foray has surprised many A V Birla group observers after indications on several occasions in the past that Birla Global Finance would hold a majority stake in the insurance venture. However, sources say BGFL, with its net worth of Rs 70 crore, did not meet a key Reserve Bank of India (RBI) condition which says only companies with a Rs 500-crore net worth can promote insurance joint ventures. Aadesh Gupta, chief financial officer of Indian Rayon, said while the details have not been worked out, Indian Rayon might contribute Rs 70 crore and Birla Global Finance Rs 7 crore. The Canadian partner may chip in with the rest. The government has set the minimum capital base for an insurance venture at Rs 100 crore.

In its communication to the Bombay Stock Exchange, Indian Rayon said the company, with free cash flows of around Rs 75 crore, will dip into its internal accruals to fund the insurance plan. �Indian Rayon is keen to seize the opportunity to add value for its shareholders by entering into a business which has immense potential in India,� it added.

Among the banks and institutions which have announced plans to set up insurance ventures are ICICI, which has tied up with Prudential, and Housing Development Finance Corporation, which has joined hands with Standard Life. Others who have announced plans, but are yet to find a partner, include State Bank of India and IDBI. Large houses such as the Tatas and the Reliance group have also said they would like to enter the insurance business in a big way.

Indian Rayon, which has so far been seen primarily as a maker of yarn, carbon black and insulators, is slowly shifting its product mix and increasingly focusing on garments.

Its garments business came under spotlight after the acquisition of premium brands such as Van Heusen, Allen Solly, Louis Philippe, Peter England and Byford from Madura Garments.    

Agra, Sept 15: 
The Taj is all set to get a facelift. Indian Hotels Co, which manages the Taj group of hotels, will consider tapping the US capital markets to fund its expansion and acquisition plans to �reinvent the Taj.�

Currently, the company has envisaged an investment of nearly $ 500 million to acquire three properties abroad which will propel the �Taj� to a powerful global entity. Speaking to The Telegraph, R. K. Krishna Kumar, managing director of Indian Hotels said, �If necessary, we will go in for an ADR (American Depository Receipt) issue. We have a good debt-equity ratio to tap the markets. But all that will depend on the availability of opportunities for acquisition.�

Krishna Kumar said the group is focussing on expanding its business in the American and Asian markets.

�We may form two separate umbrella companies � the Taj US and Taj Asia � to manage our hotels overseas. These two companies could have foreign strategic investment partners,� he said.

However, he did not name any companies. �The strategic partners need not be in the hospitality business but should share the same vision as we do. Don�t ask me the names,� he said.

In its attempt to re-enter the US markers, IHC has almost finalised plans to acquire a premium property in New York, for close to $ 150 million, Krishna Kumar said. It is also scouting for properties in the West Coast of San Francisco and in the southern cities of either Atlanta or Dallas.

�We are mainly looking at places which are large business centres like New York or the West Coast,� he added.

Besides the US market, the chain is planning to re-enter key markets in West Asia and Israel.

�In Dubai, we will take over the management of a super five star hotel,� he said, adding, �our St James Court property in London is one of our best hotels,� he said.    

New Delhi, Sept 15: 
States such as West Bengal, Uttar Pradesh and Punjab got a bonanza from the Eleventh Finance Commission by way of revenue gap grant, thanks to the failure of the team led by chairman A. M. Khusro to do its home work.

It could be laziness, or lack of time. But the damage cannot be undone at this stage. Senior officials in the government, familiar with the subject, are highly critical of the manner in which Eleventh Finance Commission went about its job.

The size of the revenue gap grant recommended and accepted by the government was far bigger than what these states deserved. It now appears that unlike the Tenth Finance Commission, whose recommendations were tilted in favour of Andhra Pradesh (Rs 630 crore as compensation to make up for revenues lost due to prohibition), Khusro�s team did not have any intention to favour any particular state. Its intentions were noble.

In fact, in chapter two of the final report titled issues and approach, the commission made it clear that it would not reward soft states and would strictly follow a normative approach in estimating the revenue gap.

The commission planned to assess the revenue gap not on the basis of actual revenue expenditure and actual revenue receipts. It was to take into consideration the tax potential of each state, and the actual achievement so that states shying away from revenue mobilisation were not rewarded. Khusro and his team failed to do precisely this.

Inquiries reveal that the second chapter which sets out the principles, was written by Amaresh Bagchi, the only public finance member of the commission whose views were not taken seriously by others. Surprisingly, Bagchi did not submit a dissenting note.

A normative approach in arriving at the true revenue gap would have called for thorough homework. The commission sought more time to complete its report. When president K. R. Narayanan refused, it wrapped up the report in a hurry and, in the process, accepted the figures supplied by states. This is how states such as West Bengal, UP and Punjab got more than they deserved.

West Bengal has the lowest tax-SDP ratio among all states (5 per cent) though its tax potential has been assessed on par with that of Tamil Nadu, which has a ratio of 10 per cent. West Bengal has been borrowing merrily over the years, something which has been mainly responsible for its widening revenue gap. Among all states, its borrowing from the pool of small savings is the highest, about Rs 4,000 crore per annum from a total collection of Rs 5,000 crore.

Had the commission assessed its revenue gap on the basis of tax potential, West Bengal would not have got even half of what the commission recommended. Similar is the case with UP, whose tax-SDP ratio is slightly over 5 per cent.

Punjab has the lowest sales tax-GDP ratio. Assam is also in a fiscal mess, but its officials were not clever enough to take advantage of the commission�s weakness. Senior officials in economic ministries maintain that the report lacks any original idea.

In comparison, the Tenth Finance Commission introduced the novel concept of alternate tax formula by pooling all central taxes and transferring 29 per cent of it to states. The Eleventh Finance Commission took its predecessor�s report as the base and simply updated it, say official sources.

Senior officials at the Centre do not see much merit in Andhra Chief minister, Chandrababu Naidu�s charge that states which perform have been penalised by the commission. Financially weak states should be helped if they are making sincere efforts to raise revenue.

The commission�s fault is that it has rewarded those states which have been consistently shying away from taking unpalatable steps to mobilise resources. The finance commission recommended a revenue gap grant of Rs 35,000 crore to 10 special category states and five non-special category states for a period of five years. (Some non-special category states do not get the grant for all the five years).

The special category states are the seven states nor north-east including Assam, and Sikkim, Jammu and Kashmir and Himachal Pradesh. The non-special category states are Punjab, Rajasthan, UP, Orissa and West Bengal.    


Foreign Exchange

US $1	Rs. 45.78	HK $1	Rs. 5.80*
UK �1	Rs. 64.60	SW Fr 1	Rs. 25.50*
Euro	Rs. 39.58	Sing $1	Rs. 25.95*
Yen 100	Rs. 42.52	Aus $1	Rs. 24.80*
*SBI TC buying rates; others are forex market closing rates


Calcutta	Bombay

Gold Std (10gm)	Rs. 4550	Gold Std (10 gm	4490
Gold 22 carat	Rs. 4295	Gold 22 carat	4155
Silver bar (Kg)	Rs.7925	Silver (Kg)	8010
Silver portion	Rs.8025	Silver portion	8015

Stock Indices

Sensex	4562.38		-109.54
BSE-100	2297.93		-77.41
S&P CNX Nifty	1417.20		-28.10
Calcutta	124.85		-1.71
Skindia GDRNA	742.71		-8.35

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